G R Infraprojects IPO - Should you subscribe?

Out of all the sectors, the construction industry alone accounts for over a tenth of the value addition (GVA) to the Indian economy. Expected to be the world’s 3rd largest construction market by 2025, it’s all set to be a $180 Bn industry soon! Its sheer size makes the sector quite appealing, also driving a case for the upcoming IPO.

The Indian IPO market has gained its momentum again after a few sluggish months, with a long list of companies set to launch their offering. With so many IPOs on the shore, July seems to bring a busy month for both the companies as well as investors!

G R Infraprojects is soon to hit the markets with its IPO. It will begin accepting subscriptions on Wednesday, July 7th. The public offering consists of a promoter and shareholder offer for sale (OFS) of up to 11.5 million shares.

But are we ready for this ride? Well, let’s find out.

G R Infraprojects Ltd. – Company Info

G R Infraprojects is a road engineering, procurement, and construction (EPC) business with extensive experience in designing and executing major road and highway projects in India. It has recently expanded into railway-related ventures as well. It specializes in EPC and BOT (Build-Operate-Transfer) civil construction projects in the road sector, but it has also expanded into thermoplastic road-marking paints, electric poles, road signage, and metal crash barriers.

It primarily operates EPC and HAM projects in the road sector across the states of Uttar Pradesh, Madhya Pradesh, Maharashtra, Gujarat, Chattisgarh, Rajasthan, etc.  Additionally, it includes railway projects in Andhra Pradesh and Madhya Pradesh and an optical fibre project spread across the other states too.

The company's promoters are Vinod Kumar Agarwal, Ajendra Kumar Agarwal, Purshottam Agarwal, and Lokesh Builders Private Limited.

G R Infraprojects – Financials

The company's total borrowings were Rs. 4494.97 crores as of March 31, 2021, whereas its net worth was Rs. 3604.43 crores.

Details of G R Infraproject’s IPO

This is basically an Offer For Sale (OFS). OFS is merely a means of exit for existing promoters/investors. In this case, the company would not get any proceeds from the issue. There is no new share issuance, except that the company would benefit from listing its shares on stock exchanges.

Factors in favour of the IPO

1. The company has strong competitive strengths such as - a team of seasoned promoters and managers, excellent project management skills, strong financial track record; it also has experience with state and national highways, culverts, flyovers, airport runways, tunnels, and other road projects.

2. Over 25 years of expertise in the road sector as an EPC contractor.

3. The company has had remarkable sales growth in the last three years, with a CAGR of 21.85%. Revenues increased from Rs 5,325.5 crores in the financial year ending to Rs 7,906.9 crores in the financial year 2021.

4. In the last three years, the company's margins have grown at a rate of 15.3 percent CAGR. The company's profit margins increased from Rs 716.6 crores in FY2019 to Rs 953.2 crores in FY2021.

5. Since 2006, the company has successfully completed 100 road-building projects. By the end of March 2021, the company had a robust order book of Rs 19,025 crores. There are 16 EPC projects, 10 HAM projects, and three other projects in this category. This ensures a high level of revenue visibility in the future.

6. The issue is valued at a P/E of 8.51 (at the upper price band) based on its FY21 EPS of Rs. 98.31, which compares favourably to the industry average P/E of 16.73.

Factors not in favour of the IPO

1. Its business is primarily reliant on road projects in India, particularly those given by government authorities. Contracts awarded by government entities provide a large portion of their revenue. Any unfavourable change in government policy could result in its contracts being foreclosed and terminated, which could hurt its operations.

2. The business of a company necessitates a large amount of capital. Insufficient cash flows to cover essential debt payments and working capital requirements could have a detrimental effect on the company's performance.

3. There is no new share issuance; hence the entire issue would be used by the existing shareholders to exit, Consequently, it will not be adding any cash inflows to the company.

The Bottom Line

Overall, the skyrocketing grey market premium of around Rs 350 reflects the optimistic and bullish outlook on the IPO. In addition to the growth in revenues and its competitive strength, it’s also pertinent to consider the objectives of its IPO before investing.

This IPO season is not ending anytime soon! So, it’s wise enough not to jump into every offer that comes your way. You’d be better off putting your money into companies having the ability to compound in the long run.

Having known the attributes of this IPO, it’s totally your call to opt-in or opt-out. So, what’s it gonna be? Let us know in the comments!

Happy investing!